Dupuy v. Dupuy
| Decision Date | 26 April 1974 |
| Docket Number | Civ. A. No. 73-2370. |
| Citation | 375 F. Supp. 730 |
| Parties | Milton E. DUPUY v. Clarence O. DUPUY, Jr. |
| Court | U.S. District Court — Eastern District of Louisiana |
C. Ellis Henican, Jr., and Carl W. Cleveland, Henican, James & Cleveland, New Orleans, La., for plaintiff.
Milton E. Brener, Garon, Brener & McNeely, New Orleans, La., for defendant.
The plaintiff instituted this action for recovery of damages sustained due to an alleged violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule X-10b-5 of the Securities Exchange Commission promulgated thereto. 15 U.S.C. § 78j(b),1 17 C.F.R. § 240.10b-5. The defendant has questioned the subject matter jurisdiction of this Court by a motion for summary judgment.
Plaintiff Milton Dupuy (hereinafter referred to as "Milton") and defendant Clarence Dupuy (hereinafter referred to as "Clarence") are brothers who reside in the same apartment complex in New Orleans, Louisiana. In fact, the record reflects that Milton and Clarence's respective apartments adjoin a small common patio. In 1971, the two brothers formed the Lori Corporation for the purpose of building, owning and operating a hotel in the French Quarter of New Orleans, Louisiana. Initially, each brother owned forty-seven (47) percent of the corporation's stock and their mother owned the remaining six (6) percent.
For purposes of preserving the historical character of the French quarter, the City of New Orleans, acting through and with the Vieux Carre Commission, established strict standards and procedures for the granting of permits for expansion, renovation or construction in the French Quarter. The Lori Corporation, after obtaining a long-term lease on suitable French Quarter real estate, received the necessary permits from the City of New Orleans and the Vieux Carre Commission. Therefore, the receipt of these permits resulted in a substantial enhancement of the prospects of the corporation.
Milton alleges that due to health problems he was unable to continue in a managerial position with the Lori Corporation, and that such loss of employment resulted in a deterioration of his financial position. Milton then found it necessary to offer his stock in the Lori Corporation for sale to his brother, Clarence.
The conduct of the ensuing negotiations, which resulted in the consummation of the sale between Milton and Clarence, is the area of contention in the alleged Section 10(b) violation. Milton contends that during the course of the negotiations, which were conducted by numerous intrastate telephone calls, Clarence made untrue representations and failed to disclose material facts in order to induce Milton to sell his Lori Corporation stock at an excessively low price. The misrepresentations and omissions allegedly disparaged the viability of the hotel project, when, in fact, the project was proceeding satisfactorily with substantial financial backing.
Clarence's version of the negotiations differs markedly from Milton's. Clarence denies making any false representations and failing to disclose any relevant information in connection with the stock transaction. Further, Clarence alleges that the negotiations were handled through their mother, who played the role of an intermediary due to the bad feelings which existed between Clarence and Milton. In addition to the residential proximity of the parties themselves, the record reflects that their mother's apartment is located next door to Clarence's apartment.
Thus, the Court has a unique factual setting for this dispute, regardless of which version of the negotiations the Court accepts. Milton maintains that his brother and he communicated only by telephone even though they live next door to each other. On the other hand, Clarence presents a scenario in which the two brothers only communicated through their mother during the course of their negotiations. No matter which view is correct, the case is essentially an intrafamily dispute concerning an interest in what is basically an incorporated joint venture.
Clarence has filed a motion for summary judgment dismissing the complaint at bar for lack of jurisdiction on the grounds that the mails were not employed; that no telephone calls directly were involved, and, alternatively, if any calls constituted part of the negotiations, then such calls were solely intrastate calls; and, that no other instrument of interstate commerce was used directly or indirectly in the transaction. Clarence avers that the transfer of the stock certificates was accomplished in a face to face meeting with Milton, and that the personal check written by Clarence in consideration for the stock shares was handled solely in local banking channels.
For the purpose of discussing this motion, the Court will assume in arguendo that the negotiations were conducted by intrastate telephone calls, as Milton alleges, since such intrastate telephone calls are the only ground asserted in support of the Court's jurisdiction. Thus, the primary legal issue presented to the Court is whether the intrastate use of a telephone, which has interstate capabilities, satisfies the jurisdictional requirement of "the use of any means or instrumentality of interstate commerce," as set forth in Section 10(b) of the Securities Exchange Act of 1934. 15 U.S. C. § 78j(b).
The question of whether intrastate telephone calls alone are sufficient to support Section 10(b) jurisdiction has been encountered previously by the federal courts with differing results. The fundamental reasons for the jurisprudential split springs from the divergent views concerning the proper determination of when an instrument of commerce is an instrument of interstate commerce.
Recognizing that an apparent majority of cases have allowed Section 10(b) jurisdiction based solely on local telephone calls, an examination of the foundation of such line of cases is appropriate. The fountainhead of this line of jurisprudence is Nemitz v. Cunny, 221 F.Supp. 571 (N.D.Ill.1963), in which the court stated:
It is clear that the use of the telephone constitutes the use of an instrumentality of interstate commerce, unless of course the telephone is merely a part of a private or intra-office hookup. Id. at 573.
A reading of the six cases cited in Nemitz supporting the quoted proposition reveals that such a per se characterization of any use of the telephone as the use of an instrumentality of interstate commerce is unwarranted. Factually, four of the cases cited as authority in Nemitz Western Union Telegraph Company v. James, 162 U.S. 650, 16 S.Ct. 934, 40 L.Ed. 1105 (1896); Primrose v. Western Union Telegraph Company, 154 U.S. 1, 14 S.Ct. 1098, 38 L.Ed. 883 (1894); Western Union Telegraph Company v. Texas, 105 U.S. 460, 26 L.Ed. 1067 (1882); Matheson v. Armburst, 284 F.2d 670 (9th Cir. 1960), cert. denied, 365 U.S. 870, 81 S.Ct. 904, 5 L.Ed.2d 860 (1961) involved telephone or telegraph messages sent between different states. For example, Matheson v. Armburst, supra, concerned a telephone call made from Oregon to the state of Washington. This Court does not interpret these four cases, either factually or legally, as standing for the proposition that the mere use of a telephone to place local calls constitutes the use of an instrumentality of interstate commerce; rather, they hold only that where calls or messages originate in one state and are received in another state, then the telephone or telegraph so employed is an instrument of interstate commerce.
The fifth such case, Fratt v. Robinson, 203 F.2d 627 (9th Cir. 1953), is not dispositive on the point for which it is cited in Nemitz, inasmuch as it dealt with an allegation of the use of the mails in connection with the purchase or sale of securities. Lastly, the court in Western Union Telegraph Co. v. Lenroot, 323 U.S. 490, 65 S.Ct. 335, 89 L.Ed. 414 (1945), did not consider the jurisdictional proposition for which it was cited in Nemitz. Lenroot concerned the applicability of the Fair Labor Standards Act to Western Union employees. While holding that the Act did not apply to Western Union, the Supreme Court initially resolved the question of whether telegraph messages were "subjects of commerce" within the contemplation of the Act by concluding that "telegraph lines when extending through different states are instruments of commerce and messages passing over them are a part of commerce itself." 323 U.S. at 502, 65 S.Ct. at 341. In support of this concept, the Supreme Court cited Western Union Telegraph Company v. James, 162 U.S. 650, 16 S.Ct. 934, 40 L.Ed. 1105 (1896), which involved a telephone call from Alabama to Georgia.
Another decision allowing jurisdiction based on intrastate telephone calls is Lennerth v. Mendenhall, 234 F.Supp. 59 (N.D.Ohio 1964). This case held that the intrastate use of a telephone satisfied the Section 10(b) requirements, 15 U.S.C. § 78j, concerning the use of an instrumentality of interstate commerce. However, the Lennerth court relied on an earlier case, Repass v. Rees, 174 F. Supp. 898 (D.Col.1959), which involved an interstate telephone call from Iowa to Colorado. Moreover, jurisdiction in Lennerth was actually based on use of the mails.
Bredehoeft v. Cornell, 260 F.Supp. 557 (D.Or.1966) rejected the reasoning of Rosen v. Albern Color Research, Inc., 218 F.Supp. 473 (E.D.Pa.1963), a case which denied jurisdiction founded on an intrastate telephone call, and instead, relied upon language in Hooper v. Mountain States Securities Corp., 282 F.2d 195, 201 (5th Cir. 1960), cert. denied, 365 U.S. 814, 81 S.Ct. 695, 5 L.Ed.2d 693 (1961), to the effect that the right of action arises when the "facilities of * * * interstate communications are used." However, the court failed to recognize that in Hooper the telephone call originated outside of Alabama and was received within Alabama.
The courts in Nemitz, Lennerth and Bredehoeft made the same blanket characterization that any use of the telephone...
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Dupuy v. Dupuy
...Clarence moved for summary judgment on the ground of lack of federal jurisdiction. The district court granted the motion. Dupuy v. Dupuy, E.D.La.1974, 375 F.Supp. 730. This Court reversed and remanded for trial, Dupuy v. Dupuy, 5 Cir. 1975, 511 F.2d 641.6 Their mother, Mrs. Florence Dupuy, ......
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